BP seeks $1.5 bn incentive for deep-sea gas

Europe’s second-biggest oil firm BP plc has asked Prime Minister Manmohan Singh for a $1.5 per mmBtu additional “incentive” for deep-sea fields over and above the near doubling of domestic gas price suggested by the Rangarajan Committee.

BP chief executive Bob Dudley on April 15 wrote to the Prime Minister seeking clear roadmap to market determined pricing of natural gas saying it will help the country cut its import of liquefied natural gas (LNG).

He said the Rangarajan panel suggested pricing model, which would lead to domestic rates going up from $4.2 per million British thermal unit to about $8, would be roughly half way to international prices.

“If the government chooses the mid-way pricing recommendation of the Rangarajan Committee, I respectfully request the government to consider... ‘an additional price incentive of $1.5 per mmBtu’ for deepsea fields to compensate for high cost and exploration risks,” he wrote.

The incentive for deepsea fields being sought already exist in Pakistan which promises a minimum price of up to $9 for ultra deep sea fields to make up for high cost and exploration risk associated with such development.

Mr. Dudley said the government needs to come out with a schedule of “quarterly increases over the three-year period” to move to an “arms-length market determined price.”

“In the Indian context, this is represented by the landed price of LNG,” he said.

“Prime Minister, I believe such a clear pragmtic market — based policy to move India’s gas price to the level of imported LNG will create a dynamic and power fuel shift of India’s industry. It would reduce not only gas imports but likely also coal imports for mid-merit and peaking power and urea as fertilizer,” he said.

Adopting the Rangarajan panel suggested pricing formula that mixes international hub price and cost of imported LNG-based, would lead to “a large step change in activity across the nation to unlock its gas resources with a clean buring fuel.”

Mr. Dudley wrote the letter on the same day he had met Singh along with Reliance Industries Chairman Mukesh Ambani. BP holds 30 per cent stake in RIL’s KG-D6 gas fields and several other blocks.

“The Committee headed by Dr C. Rangarajan (chairman of the Prime Minister’s Economic Advisory Council) has worked hard and it recognises that the current prices for domestic gas are far from international prices and create little incentive for new exploration and production activities in the country,” he added.